The number of mortgages approved for house purchases fell to a record low in November, despite the 1.5% cut in interest rates at the start of the month, the British Bankers' Association (BBA) said today.

Just 17,773 loans were approved for homebuyers during the month, down from 20,767 in October and 61% below last November's figure of 44,315. This is the lowest level of approvals since records began in 1997, and the continued lack of demand for homes is likely to drive down house prices further in coming months. The value of home loans approved for buyers was down by almost 70% year-on-year, at £2.1bn.

It was not just a lack of numbers that pushed down the overall value of lending for house purchases - the average value of mortgages has also fallen sharply since last year as house prices have tumbled and lenders have restricted maximum loan sizes.

In November, the average loan for a house purchase was £116,700 - a drop of almost £12,000 since October and well below the average of £159,600 last June when the housing market was nearing its peak.

There was also a steep drop in the number of borrowers remortgaging during the month with just 29,798 borrowers having new loans approved compared with 52,452 in October, the lowest number for eight years.

Customers who would usually remortgage at the end of a special offer rate may have been persuaded to stay on their lenders' standard variable rate (SVR) after the banks were pressed to pass on the base rate cut to existing borrowers.

After the 1.5 percentage point reduction in rates, many SVRs are now more competitive than the short-term discount and fixed rates on offer to new customers.

The BBA said the shock interest rate cut to 3% had prompted November's slowdown in mortgage activity.

The BBA's statistics director, David Dooks, said the cut had "caused lenders to reassess product ranges and borrowers to reconsider future borrowing costs".

Many lenders pulled tracker mortgages early in the month as borrowers, convinced that further rate cuts were on the way, scrambled for loans attached to the base rate. Those that reintroduced the loans later on did so with much higher margins.

Dooks said consumers were also concerned about taking on new debts. "Volumes of mortgage approvals reached new lows and, with house prices still falling, the encouragement of lower costs had not filtered through by the month-end, largely because people remain concerned about the impacts of the rapidly slowing economy on their personal finances," he said.

Lack of confidence

After taking into account repayments and redemptions, the BBA said the value of mortgages advanced fell to £2.9bn in November. Consumer credit also remained subdued as households reined in spending, despite the start of the run-up to Christmas. Borrowing on credit cards, personal loans and other types of consumer credit was up by just £0.2bn over the month.

Howard Archer, chief UK economist at IHS Global Insight, said the BBA's data showed activity in the housing market was "dead in the water". "The outlook for the housing market remains bleak. Even if the government measures to tackle the financial crisis work on a sustained basis, it will clearly take time for confidence to improve and mortgage lending to pick up significantly.

"These factors are likely to continue to outweigh the beneficial impact of lower mortgage interest rates resulting from the Bank of England slashing interest rates, particularly as it is still very difficult to get a mortgage."

While lending was down, the banks reported a spike in deposits as savers started to be paid back the money they had deposited in Icelandic banks. The pay out from the Financial Services Compensation Scheme to savers with the collapsed internet bank Icesave was part of the reason banks saw a net inflow of £3.9bn into accounts over the month.